Five Things to Consider- Week of August 19th 2019

Airbus Harnessing AI in Bid to Save Millions on Finance TasksArtificial Intelligence (AI) is most often thought of in applications such as self-driving cars and virtual receptionist platforms. However, one application is much more feasible: financial AI. Finance tasks, such as reviewing accounts payable, are tedious and often are especially susceptible to human error. They also don’t necessarily require a skill that is uniquely human. This is an almost ideal situation to begin implementing AI. Artificial intelligence harnessed by Airbus’ US division reviews employee reimbursement lists and then references certain “non-compliant” entries to human supervisors who make the final decision. This creates a symbiotic AI-human relationship that allows a “sweet spot” of increased performance. The system has already saved hundreds of thousands of dollars and has a large horizon for expansion. The applications are very strong – numerous mundane accounting tasks can not only be expedited, but also made more accurate by the introduction of these systems. Another important point is that AI in this context isn’t a “job-killer”. It allows qualified employees to move to more supervisory roles – likely increasing their work satisfaction.

As the Fed Frets, Retailers Rake in SalesIn the midst of trade uncertainty and a Fed that’s relying on “insurance”, the U.S. consumer has been markedly resilient. Lowe’s, Home Depot, Walmart, and Target reported strong results, adding onto the overall picture of the consumer. Should the Fed have taken such a bearish stance, by choosing to cut rates for the first time in ten years? By doing so, one of the main implications is that the trade uncertainty (amid slowing global growth) can do enough harm to drive the U.S. economy into a recession. Is this really a danger with the consumer as it is? Indicators have had numerous different results – some hinting at a recession and some painting a strong economy. But the wisdom of the consumer shouldn’t be quickly discounted. It should be remembered that the consumer is more at the foundation of the American economy than in many others (China for instance). As long as the consumer stays strong, a recession has a formidable barrier; in light of these results the consumer has maintained its lead.

Boutique Fitness Brands Could Be Hit First in a RecessionFitness brands like Equinox and Peloton are currently very sought-after private investments. Do these companies really fundamentally merit this attention? Most likely not as a whole. In this market, uncertainty is almost a given. Sometimes, the volatility seems so severe that it feels as if a recession could be “a tweet away”. It should be understood that on-demand fitness and upscale gyms will typically be the type of items that will immediately drop once the economy enters a recession. Sometimes, an investment appears to have tremendous short-term consumer momentum, but consumer tastes are very fickle, and we believe every stock should be considered across a range of economic scenarios. Otherwise, the level of exposure to risk could be much more than intended by the investor.

An Economic Warning Sign: RV Sales Are SlippingThis article discusses an economic indicator that is in stark contrast with the more academic indicators of Wall Street such as Dow Theory and an inverted yield curve — RV sales. The RV industry represents a quick-depreciating luxury asset, one that consumers tend to rapidly exit in the event of a recession. Therefore, RV’s could be one of the first industries to feel an actual recession and may function as a “canary in the coal mine.” With that understanding in mind, we point out while RV sales have dipped recently, overall sales levels remain solid. Could this, in contrast with the strong consumer, hint at a downturn? Not necessarily. Though, RV sales are a metric, they are only one of many. We believe indicators tend to move in concert as a recession approaches. In our view, one should cautiously consider the potential informational value of any one indicator in a vacuum.

U.S. Glut in Natural-Gas Supply Goes GlobalThe failure of the US natural gas market to self-regulate production levels in the face of almost unlimited supply is now affecting the global market. In a nutshell, NG prices haven’t been lower, and the majority of natural gas storage is already full. This is causing havoc to U.S. based NG companies and is adding to uncertainty for the whole industry. This is partially another repercussion of the US-China trade war. The 10% tariffs leveled on natural gas did significant damage on shipments to China, due to natural gas’ already narrow margins. The might necessitate an industry-wide restructuring to create a more stable market for the very uncertain times ahead.

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Index Definitions:

MSCI ACWI Index: is a free float‐adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes.

MSCI Emerging Markets Index: The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries*. With 845 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country

S&P 500 Index: The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P CoreLogic Case-Shiller Home Price Indices: The S&P CoreLogic Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate both nationally as well as in 20 metropolitan regions. For a list of additional indices, please refer to the S&P CoreLogic Case-Shiller Home Price Index Methodology.

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